Packers & Plugs

Primarily used during completion or well intervention, a plug is required to isolate a part of the wellbore from another part; for instance, when a job is carried out on the upper section of the well, the lower part of the wellbore must be isolated and plugged, i.e. zonal isolation in a well. Plugs can be temporary or permanent; the former can be retrieved, whereas the latter have to be drilled out. There are number of types of plugs, namely bridge plugs, cement plugs, frac plugs and disappearing plugs. Plugs can be set using a wire-line, coiled tubing or drill pipe

Importance

Leverage

Strategic

Routine

Bottleneck

Buyer Power

Strong

Price Trends

Category description

Primarily used during completion or well intervention, a plug is required to isolate a part of the wellbore from another part; for instance, when a job is carried out on the upper section of the well, the lower part of the wellbore must be isolated and plugged, i.e. zonal isolation in a well. Plugs can be temporary or permanent; the former can be retrieved, whereas the latter have to be drilled out. There are number of types of plugs, namely bridge plugs, cement plugs, frac plugs and disappearing plugs. Plugs can be set using a wire-line, coiled tubing or drill pipe.

Used during completion, a packer serves the purpose of sealing off the area between production tubing and casing and the wall of the wellbore. A primary reason to run a packer is to prevent formation fluids going up the wellbore, which could otherwise damage the casing or other formations in the well, be it below or above the production zone. The packer can also serve as an anchor point for production tubing.

Packers can be retrievable or permanent (production). Retrievable packers are used in a less challenging and less hostile environment and where frequent well re-completion is required, or when there is another activity carried out in a well, such as well stimulation or cement squeezing, or to isolate leaking zones. Permanent packers are required at all times when a well is producing, and are generally technically superior and offer far better performance capabilities than retrievable packers.

Production packers are set just above the perforation area and very close to the bottom of the production tubing. In a multi-zone well completion, production packers are set between multi zones. In injection wells, packers isolate the areas into those in which injection fluids are pumped, hence service packers may be used as well.

There are number of various technologies used in packers for various applications, namely Swellable Packers, Inflatable Packers, Hydraulically Set Packers, Intelligent Completion Packers, Sand Control Packers, Dual String Packers, Sealbore packers and Mechanical Packers.

Production tubing string or a wire-line is used as the deployment tool to run any packer.

Risks & Opportunities

The supplier/manufacture of packers is in the best position to design and advise on the type of packer and material selection to best meet a specific well's conditions and requirements. The choice is driven by a large variation in materials, tensile requirements and designs available.

Supply & Demand Dynamics

Demand

The demand for packers and plugs is affected by two factors: 1) new well completion and 2) work-over (well intervention). With drilling activities worldwide (especially in the USA) and given the steady growth in well intervention activities, due to continuous efforts on maintaining and maximizing production within existing oilfields, the demand for packers and plugs is set to increase substantially. The overwhelming majority of packers' requirements are expected to come from North America.

Coupled with superior performance and improvements in technology, production (permanent) packers are becoming more reliable and are now more in demand compared to retrievable packers. As a result, production (permanent) packers are the most widely used worldwide and should dominate the demand in this category.

According to Markets & Markets, global demand for completion equipment, in general, is forecasted to grow at almost 4 % per year to reach US$13B by 2019. The growth in this market is heavily driven by the drilling of unconventional wells, with multi-zone isolation and fracturing. However, in the short term, the expected growth is hampered due to delayed completion activities in the North American market and subject to the oil price fluctuations and breakeven points for shale drillers.

The GCC region represents one of the smallest markets for completion equipment as a whole. Yet, even here, packers are the highest spend category. While non-conventional drilling activities are less relevant to the GCC, well intervention and the re-development of fields to maintain production are the key drivers. Retrievable packers and plugs dominate the market in the GCC, since milling out permanent packers is very costly, compared to retrievable ones.

Supply

There are number of companies who manufacture packers and plugs. Due to the relatively low complexity technological process, manufacturers tend to position their plants near major oil and gas sites, i.e. close to the actual oilfields.While there are a few property-protected technologies, in general the market for packers and plugs is highly competitive with a significant number of suppliers.

External Scanning

The balance of power is almost equally spread between buyers and sellers, as the suppliers might have unique technologies that are critical to buyers. However, coupled with highly completive environment and a small potential for new players, buyers are in a stronger position.

New Entrants is High

Manufactured by 3rd party

Raw materials are commodities

Supplier Power is Medium

Low / Mid tech equipment

Many providers

Need volumes

No alternative for buyers

Competitive Rivalry

Highly competitive environment

Technology is available to many players

Low switching costs

Battle for marker share

Commodity materials

Buyer Power is High

Low / Mid tech equipment

Many providers

Spend is might be significant for suppliers

Low switching cost

Substitution

Does not exist

Portfolio Positioning

ROUTINE

High

Low

High

Cost & Price Analysis

Price AnalysisOver the past few years, the prices for packers and plugs have shown a downward trend due to relatively small demand, high competition and a decline in commodity prices, such as steel and rubber.

The prices for packers are driven by their application and/or a unique design that is applicable to a particular field. Temporary/retrievable packers cost more than permanent packers due to the complexity of the design. Prices for packers range from US$6,000 to US$300,000 each, depending on their application, i.e. HP/HT, H2S content, chemicals resistance. Plugs range in prices from US$2,000 to US$50,000. Packers made of special alloys (inconel, monnel, etc.) can cost up to US$300,000 and require a lead time of up to one year to be delivered.

Cost AnalysisPackers are made of steel and elastomers/fluoroelastomers (high-quality synthetic rubber), with the rubber representing around 50% of the cost of the packer. The steel and rubber grades used during manufacturing are dependent on the application requirements and are driven by the hostility of the environment, i.e. HP/HT and H2S content. The metals used are low-alloy steels, high nickel alloys, chromium grade alloys, PH stainless steels, and cast iron. Up to 10 components may be included when manufacturing elastomers, with the major component being polymer as an alternative to natural rubber.

Most plugs are made of composite materials, cast iron, brass, aluminium and rubber. Hence, these products are highly driven by commodities prices.

Total Cost of Ownership

The procurement of packers and plugs historically has been fairly direct, with a clear market structure and no hidden risks and costs. There is a significant number of manufacturers of packers and plugs worldwide.

Some important considerations for TCO evaluation are:

Mill-out efficiency of plugs/packers. This is important as it will affect the cost to mill-out when required at a later stage, since the longer it takes to remove the plug/packer, the more it will cost in terms of the equipment and deployment tools to remove the plug/packer

Time required to retrieve packers/plugs. Although lower priced permanent packers may be cheaper than retrievable packers, it is important to consider the time required to retrieve packers/plugs later on, if required

Manufacturing quality and raw materials. This is of utmost important as a low cost packer/plug can cause very long delays if they fail to meet the sealing requirements

Potential damage. Damage is a significant issue, particularly in a hot climate, as the rubber components may dry and lose their qualities very fast

Meeting the right specification and not overspecifying. When selecting the elastomer/fluoroelastomer and steel grades it is critical that they meet all the down-hole conditions, but do not need to exceed what is needed. Overspecifying can have a significant impact on prices and lead times.

Strategy

Use standardized products and optimize the inventory and utilization

Locate manufacturers close to oilfields, in order to minimize transport costs

Some packers are critical and know-how and expertise are important

The learning curve followed with manufacturers in designing and manufacturing the most effective packers is vital, hence changing contractors frequently may not be beneficial